LONDON (Reuters) - An investigation into alleged manipulation of foreign exchange markets could pose a bigger problem for banks than the Libor interest rate rigging scandal, the boss of Royal Bank of Scotland (RBS.L) said on Friday.
RBS paid $612 million last year to settle allegations that it manipulated Libor rates, one of several banks hit with big fines for rigging financial benchmarks. Regulators are now investigating allegations that traders manipulated key reference rates in the $5 trillion-a-day foreign exchange market.
Asked if the FX investigation could be a bigger problem for the industry than Libor, RBS Chief Executive Ross McEwan said: “Unfortunately, it has the hallmarks”.
McEwan, speaking on LBC radio, added: “We’re still doing a lot of investigation. We’re going through just millions and millions of emails, chatrooms, conversations to see what actually went wrong, if anything, in this area.
“Unfortunately, I have the feeling that this is a sort of Libor case again ... The difference this time is that we haven’t sat back and denied it. We’ve gone into it and are doing the investigation hand-in-hand with the authorities.”
McEwan said it was another problem from the past that banks need to clean up to be able to move on. His bank has disclosed a number of investigations but it could take until 2016 before they are cleared, he said.
“There are a number of litigation and conduct issues that we are still having to grapple with that will come out over the next 18 months,” McEwan said.
U.S. and European regulators have handed down about $6 billion in fines to 10 banks and brokerages, including UBS UBSN.VX, Barclays (BARC.L) and Deutsche Bank (DBKGn.DE) for alleged rigging of Libor and its euro cousin Euribor, and more banks are expected to be hit.
The industry is striving to take steps to reform currency benchmarks and show it is cleaning up its act, and a blueprint for change was laid out by the Financial Stability Board earlier this week.
But a number of industry analysts have said the combination of fines from investigations in more than half a dozen jurisdictions worldwide, and the potential for suits by fund managers and other investors, could saddle banks with a bill several times costlier than Libor.
Benchmark foreign exchange rates are used to set the value of trillions of dollars of investments and regulators are looking at whether traders at some of the world’s biggest banks colluded to manipulate the rates.
Martin Wheatley, chief executive of Britain’s Financial Conduct Authority, said earlier this year allegations about FX wrongdoing were “every bit as bad as they have been with Libor”.
Additional reporting by Patick Graham; Editing by Tom Pfeiffer and David Holmes